The Right Use of Money: Time for Fair Prices

‘Money makes the world go round’ as the song goes.  But seemingly more so for some than for others… 

Not only do we now live in one of the most unequal societies in the ‘developed’ world – in terms of the distribution of money between rich and poor – but far too many experience the double injustice: Those with the least money frequently pay the most.

As my good friend, John Taylor, CEO of the US Community Reinvestment Coalition memorably said a few years ago, ‘we need to make capitalism work for the poor.’  But sadly, at present, capitalism (or ‘free markets’ more precisely) simply aren’t working for the poor.  Left to their own devices, ‘free markets’ frequently offer those with little money inferior products (or no products at all), at much increased prices. 

Increased prices for their gas or electricity (for those required to pay via pre-payment meters); increased prices for their food (corner shops charging inflated prices for poor quality products); increased prices for insurance (if they can get any at all), and worst of all – inflated prices for accessing money in the first place.  In recent years we have witnessed an explosion of payday lending in the UK, mirroring what happened in the US: Companies aggressively marketing instant loans at APRs in excess of 2,000, with predictable consequences in terms of increased levels of debt

Last year Save the Children put a figure on the ‘Poverty Premium’ of nearly £1,300 a year for the average family on low incomes.  £1,300 a year (or £22 a week) is a huge extra bill to shell out when you haven’t got much to start with. 

So is it time to make capitalism work for the poor.  But what would this look like?

Firstly, fair access.  Whatever the arguments are about the ‘right use of money’, in a modern western economy, it is hard to argue the case that it is possible to function as a citizen (or consumer) without any access to money.  And yet, there is still no universal service obligation on the financial services industry (as there is, for example, for the water industry). And I’m not meaning here second rate ‘Basic Bank Accounts’, but a universal obligation to provide access to the full range of financial services – insurance, and yes, credit.   Banks may be under pressure to strengthen their balance sheets, but surely not at the expense of refusing to serve 10 or 20 percent of the UK population?

And secondly, fair prices.  Much of the ‘logic’ of the way markets have developed in recent years is to move towards ‘risk (or cost) pricing’ and away from shared risk.  Some of the assumptions behind this are extremely dodgy:  The majority of high cost lenders claim that their premium prices are based on the ‘risk’ of lending to low income customers… any yet, when customers pay week after week, year after year, the cost doesn’t go down.  But fundamentally, is it socially (or morally) acceptable to operate ‘cost’ pricing models which force the poorest to pay most?  How can companies square all their talk in recent years of corporate social responsibility, with charging their poorest customers the most?

And if individual businesses are unwilling to offer products to low income consumers at fair prices (not least by claiming they can’t do so if their competitors don’t), then is there not a role for market intervention?

Yet, in spite of all the heroic efforts of Stella Creasy MP, the Centre for Responsible Credit (and a host of others), the Government appears to remain steadfast in opposed to any form of price cap or regulation – which interferes with the ‘free’ operation of markets – whatever the social costs of failing to do so.

5 thoughts on “The Right Use of Money: Time for Fair Prices

  1. In addition to your very appropriate comments I want to add my concern about cutting support for
    any 16-19 year olds in Further Education or Vocational Training.
    Surely this adds to the fact they will remain unskilled andf unemployed

  2. These proposals would make things worse not better for the poor – from a situation where they had access to credit, albeit expensive credit (and to be quite blunt here we’re talking about those who are working – the clue’s in the name “pay day loan”), this will evaporate.

    Unless of course you propose to force lending institutions to give money to people who they are pretty damn sure won’t be able to pay it back. Just think for a second…there used to be a name for this type of lending, didn’t there?

    “Sub-prime” they called it, if I recall rightly. And I also recall that this type of lending is what caused the problem in the first place?

    So superficially a very sweet idea. But practically speaking – and going on past events which are the only guide – a really stupid one.

    • Not entirely clear what you’re arguing here Simon. My underlying argument is that what is needed is responsible lending, with fair access and at fair prices, including the opportunity to build up credit histories, and without high pressure marketing or encouragement to roll-over loans etc. This is all the more important for those on low incomes (whether in work or not), who can’t afford the costs of irresponsible lending. Sadly too much of what constitutes ‘sub-prime’ lending currently fails this test. Of course, there are some folk who simply don’t have enough money to afford to take on credit – but that is where the State needs to step in (and used to do so, with Social Fund grants as well as loans). The assumption that a lightly regulated free market can meet everyones credit needs, on current evidence, is patently wrong.

  3. Pingback: Tacking Funeral Poverty: Congratulations to QSA | Niall Cooper

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